401K roll over

[rick in cal]

I have a few clients who belong to a large union that is going to allow them to cash out of their 401K accounts. I have encouraged the first one that called me not to cash out because of the tax and penalties but since he is not happy with their performance I told him he could roll it into a traditional IRA and have control over how the money is invested. Looking at the new rules for 2010 does anyone see a reason why he couldn't then move some or all of his money into a roth IRA and take advantage of the new law allowing him to pay the taxes in 2011 and 2012. Since we actually don't have to do this in two steps anymore can he move his money from his 401K directly into a roth and take advantage of the new law.

[Pacun]

I have a few clients who belong to a large union that is going to allow them to cash out of their 401K accounts. I have encouraged the first one that called me not to cash out because of the tax and penalties but since he is not happy with their performance I told him he could roll it into a traditional IRA and have control over how the money is invested. Looking at the new rules for 2010 does anyone see a reason why he couldn't then move some or all of his money into a roth IRA and take advantage of the new law allowing him to pay the taxes in 2011 and 2012. Since we actually don't have to do this in two steps anymore can he move his money from his 401K directly into a roth and take advantage of the new law.

Yes, you can rollover directly to a Roth IRA and pay taxes in 2010 and 2011 or pay taxes in full in 2010 tax return.

You have two choices: You can roll over to a rollover IRA or to a Roth IRA. You can ask your client to open a Roth IRA and then ask the Plan administrator to send 401K money to that Roth IRA.

[rick in cal]

That's the way I see it too. I have a few clients that will probably be able to take advantage of this new law and it seemed to be too easy. I can't remember another tax year where tax planning was so important especially with the inheritance tax debacle congress created for one year. One minor correction that might have been a typo. The tax payer wouldn't pay taxes on the racharacterization until the 2011 and 2012 tax year.....strange.

[Pacun]

That's the way I see it too. I have a few clients that will probably be able to take advantage of this new law and it seemed to be too easy. I can't remember another tax year where tax planning was so important especially with the inheritance tax debacle congress created for one year. One minor correction that might have been a typo. The tax payer wouldn't pay taxes on the racharacterization until the 2011 and 2012 tax year.....strange.

You are right they will have to pay taxes in 2011 and 2012. Which means that some people will pay on April 15, 2013.

[rick in cal]

Or oct 15th 2013 after they file for an extension and drop everything off to me on the 14th.